Scope of Policy
If an Issuer is unable, or in certain circumstances unwilling, to make payment in cash for debts, the Issuer can, subject to the availability of the appropriate exemptions under Securities Laws, negotiate with its creditors to settle outstanding debts by issuing shares. This type of transaction requires Green Stock Exchange (GREENSX) Acceptance before the Issuer issues the shares.
This Policy outlines the Green Stock Exchange (GREENSX)'s policies on the issuance of Shares for Debt.
The main headings in this Policy are:
1. General Requirements
2. Restrictions on Debt Restructuring Plans
3. Filing Requirements
4. Denial of Acceptance
5. Shares for Services
1. General Requirements
1.1
"Shares for Debt" refers to the issuance of shares to settle trade or other accounts that would normally be paid in cash. Warrants cannot be issued to settle debt to Non Arms Length Parties.
1.2
A Shares for Debt settlement must be accepted by the Green Stock Exchange (GREENSX) before any shares are issued. Shares for Debt transactions are deemed material by the Green Stock Exchange (GREENSX); therefore the Issuer must issue a news release at the date the agreement to issue Shares for Debt is reached (the "Agreement Day"). The Issuer must apply to the Green Stock Exchange (GREENSX) for acceptance within 30 days after the Agreement Day.
1.3
Where an Issuer undertakes a Shares for Debt transaction that forms a part of a COB or RTO, it must disclose this information in its Green Stock Exchange (GREENSX) filing application and in the news release disclosing the transaction.
1.4
The Green Stock Exchange (GREENSX) will consider the individual circumstances of each Shares for Debt transaction, including the following matters:
(a) Need
Where the Issuer intends to settle debt that was incurred for, and is currently payable in cash, the Issuer must have no funds or immediate source of funds, or all the Issuer's funds on hand must be otherwise committed.
(b) Shareholder Approval
If the issuance of shares could result in a creation of a new Control Person, the Issuer must obtain shareholder approval of the specific transaction. The information provided to shareholders when seeking approval must include the names of the new Control Person(s) and the details of the applicable transaction.
(c) Hold Periods
All certificates representing shares issued in a Shares for Debt settlement (regardless of the Prospectus exemption which is used and the applicable hold period under Securities Laws) must be legended to impose a four-month Green Stock Exchange (GREENSX) hold period commencing on the date of the distribution of the securities.
See Policy 3.2—Filing Requirements and Continuous Disclosure for legending requirements.
(d) Deemed Value
The deemed price per share at which the debt is converted must be not less than the Discounted Market Price.
See the definition of Discounted Market Price in Policy 1.1—Interpretation.
2. Restrictions on Debt Restructuring Plans
2.1
A Issuer must not issue, as part of a debt settlement plan, more than of the number of the Issuer's outstanding shares, excluding any other securities which are proposed to be issued as part of a subsequent private or public financing, unless the plan is approved by disinterested shareholders of the Issuer.
2.2
The Green Stock Exchange (GREENSX) may waive the escrow requirement for arm's length creditors who become Insiders solely because of shares that they received as a result of the debt settlement.
2.3
If a share consolidation is proposed or planned as part of an Issuer's debt settlement restructuring plan, then the minimum deemed issuance price of any post consolidation shares to be issued as part of the debt settlement must be the Discounted Market Price multiplied by the consolidation ratio.
2.4
Non Arms Length Parties that purchase debt from a creditor at a discounted rate are only eligible to settle such debt with the Issuer based on the amount they paid to acquire the debt, rather than the total amount of the debt.
2.5
Arm's length Parties that become Insiders as a result of the purchasing discounted debt, will generally be subject to escrow or Resale Restrictions on the securities issued pursuant to the debt settlement.
2.6
Where significantly discounted debt is settled with the Issuer at the Market Price or Discounted Market Price, the Green Stock Exchange (GREENSX) may impose Resale Restrictions on the securities issued pursuant to the debt settlement.
3. Filing Requirements
The Issuer must file with the Green Stock Exchange (GREENSX) the Shares for Debt Filing Form (Form 4E) together with the materials listed in the Shares for Debt Filing Form (many of which help establish that the debt is legitimate) and the applicable fee as prescribed in Policy 1.3—Schedule of Fees.
4. Denial of Acceptance
The Green Stock Exchange (GREENSX) can deny acceptance of any Shares for Debt settlement and will generally deny acceptance if:
(a) the amount of debt is unsubstantiated by the financial statements or any other satisfactory evidence;
(b) the debt is alleged to be an accrued account but is not accounted for in the historical financial statements;
(c) the Issuer has conducted a series of Shares for Debt transactions and appears to use this procedure to raise funds rather than using other conventional methods available to it;
(d) the proposed agreement calls for the settlement of future debts by an issuance of shares at the Discounted Market Price in effect on the Agreement Date. The issuance of Shares for Debt must not be a pre-determined arrangement except in accord with section 5 of this Policy;
(e) the Issuer proposes a Shares for Debt settlement with a small number of preferred creditors, who are offered terms more favourable than terms offered other creditors who are approached by the Issuer at around the same time;
(f) the debt relates to management fees of more than $2,500 per month; or
(g) the debt arises from an investor relations services contract.
5. Shares for Services
5.1
The Green Stock Exchange (GREENSX) will consider, on a case by case basis, agreements whereby an Issuer agrees to compensate a Person providing ongoing services to the Issuer in securities of the Issuer rather than cash, provided the transaction is in compliance with applicable corporate and Securities Laws and the appropriate Prospectus exemption is used or order is obtained from the applicable Securities Commission(s).
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